Why Interest Rates are Rising

Yesterday, the 30 year yields closed at 44.89. At the end of December, the
30 year yields were only 25.19 ... that was a significant rise (see the chart
below). 30 year mortgage rates got down as low as 4.5%, and yesterday they
ranged from 5.25% to 5.375%.

When mortgage rates went to 5.25%, there was a 16% drop in mortgage applications.
The point is, that the higher mortgage rates rise, the more a recovery in housing
is going to be jeopardized.

So, the rise in mortgage rates has been going on for some time and yesterday
.... rising mortgage rates finally got the attention of Washington which is
now putting pressure on Bernanke to try and keep rates down.

We expect Ben to throw a lot of money at driving rates down in the short term.
Longer term, it is a zero sum game for Ben as he has $300 billion left that
is earmarked for keeping rates low and the reality is that he probably needs
$1 billion to do the job in the next few months.

Why are rates going up? Part of the reason is that there is not enough
money for the Government spending levels.

For every dollar being spent in Washington, only 54% is being funded by taxes.
That requires the Government to borrow 46 cents for every dollar spent.
(Isn't this the formula that got U.S. consumers over leveraged and in trouble
in the first place?)

As reluctance to buy bonds and lend to the U.S. Gov. increases, rates have
to go higher to compensate for the higher risks.

[To get an approximation of where interest rates should be relative to the
TYX 30 year yields:

Take the TYX and divide it by 10 (44.89/10 = 4.489). Then add .761 to .886
to that number. That will give you a range of 5.25% to 5.375% for yesterday's
rates. The .761 to .886 are not set in stone ... they represent the current "spread" that
banks are marking up long term rates, on mortgages, so they can make a profit.
This spread can have a larger change over different time periods reflecting
changing market conditions.]

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed
his own proprietary analytical tools and stock market models. As a result,
he was out of the market two weeks before the 1987 Crash in the most recent
Bear Market he faxed his Members in March 2000 telling them all to SELL. He
is an advanced technical analyst and not an investment advisor, nor a securities
broker.

Be My Guest and Take Advantage of Our Free Membership ... Get a Free
Membership to StockTiming.com ... Youll receive important daily messages before
the market opens and direct links to todays important web pages. Information
and messages that are often not posted on our website. There is no obligation
or expectation on our part ... it is just our way of proving our accuracy and
timing expertise to you. Please click here for your Free
Membership.